4 Best Emerging Market ETF Buys

by Robert Martin | November 8, 2013 7:00 am

4 Best Emerging Market ETF Buys

[1]This has been a great year for U.S. equities, if the S&P 500 and its huge 2013 gains are any indication. However, political turmoil seems more norm than not, and tapering — whenever it comes — will almost certainly induce a market correction. So where should investors go to find solid stock returns?

Emerging market ETFs.

Picking single stocks in emerging markets is as difficult as it is risky — you have to understand the risks and opportunities of whole countries, in addition to the usual stock movement and balance sheets. You’re much better off owning an emerging market ETF. You get plenty of exposure to the market, without the risk of holding a single stock.

With that in mind, here are four of the best emerging market ETF picks: A China ETF, an India ETF, and two other ETFs that track broad indices like the MSCI Emerging Markets Index.

PowerShares Gold Dragon Halter USX China Portfolio (PGJ)

Expense Ratio: 0.7%

China’s economy is massive, so you’d be wise to carve out a piece of its growth. One of the best ways to do that is w

ith the PowerShares Gold Dragon Halter USX China Portfolio (PGJ[2]). This China ETF tracks the NASDAQ Golden Dragon China Index, with 68 holdings that do most of their business in China.

Top holdings include internet companies Qihoo 360 Technology (QIHU[3]) and Baidu (BIDU[4]) — both about 8% — as well as Chinese media giant Sina (SINA[5]) at 6.6%. More than half of PGJ is dedicated to tech stocks, with another 20% allocated in consumer discretionary. This makes a good play for China’s burgeoning tech industry, with a side dish of consumer stocks for the country’s enormous population.

Even when it comes to ETFs, overseas investments still have their risks, but this China ETF has averaged 10% annual gains over the past five years.

iShares MSCI India ETF (INDA)

Expense Ratio: 0.67%

There are only a handful of worthwhile India ETFs out there. But if you’re going to pick one India ETF for your portfolio, it should be the iShares MSCI India ETF (INDA[6]).

This fund tracks the MSCI India Total Return Index, with 74 large- and midcap holdings.

Infosys (INFY[7]), Housing Development Finance and Reliance Industries LTD are the top three holdings, with weightings between 8% and 10.5%. Of course, just about any India ETF will have a heavy allocation to Infosys and Reliance. However, INDA dedicates a lower percentage to energy than some of the alternatives, and instead leans more on IT and consumer spending.

Given India’s young population, those two sectors could see huge growth in the future. Granted, this India ETF could be a volatile holding in the immediate future … but it has tons of potential for long-term growth.

iShares MSCI Emerging Markets ETF (EEM)

Expense Ratio: 0.67%

Perhaps you don’t want to put all of your emerging market investments into a single country. In that case, you should look at funds like the iShares MSCI Emerging Markets ETF (EEM[8]), which is benchmarked to the MSCI Emerging Markets Index.

EEM has 821 holdings, which means much broader exposure than you’d get with the China ETF or India ETF.

The MSCI Emerging Markets Index is fairly heavily weighted in several countries. EEM has allocated 18% of its holdings to Chinese securities, 16% to South Korea, 11.5% to Brazil and 11% to Taiwan. Every other country comprises less than 10% of the fund. Samsung (SSNLF[9]) is the current top holding, at almost 4%, with Taiwan Semiconductor Manufacturing (TSM[10]) and China Mobile (CHL[11]) rounding out the top three.

EEM suffers from the fact that it’s not the most “emerging” of the emerging market ETFs. Many of its holdings do business in developed markets. But that could make this a more stable pick than any other emerging market ETF.

South Africa, China, Mexico and Brazil collectively make up 68% of ECON’s holdings. The top three holdings are Naspers LTD (NPSNY[14]) at 10%, AmBev (ABV[15]) at 8% and FEMSA (FMX[16]) at 5.6%.

All of ECON’s holdings are in the consumer goods or consumer services industry, which means this ETF will rise or fall with consumer spending. But given its exposure to countries with growing economies, this ETF is set to soar as soon as the global economy stabilizes.

As of this writing, Robert Martin did not hold a position in any of the aforementioned securities.